RaySearch Laboratories (STO:RAY B) Is Paying Out A Larger Dividend Than Last Year

RaySearch Laboratories AB (publ) (STO:RAY B) will increase its dividend from last year's comparable payment on the 30th of May to SEK3.00. The payment will take the dividend yield to 1.0%, which is in line with the average for the industry.

We've discovered 2 warning signs about RaySearch Laboratories. View them for free.

RaySearch Laboratories' Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, RaySearch Laboratories' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 20.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

See our latest analysis for RaySearch Laboratories

RaySearch Laboratories' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the annual payment back then was SEK0.25, compared to the most recent full-year payment of SEK3.00. This means that it has been growing its distributions at 32% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that RaySearch Laboratories has been growing its earnings per share at 25% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that RaySearch Laboratories could prove to be a strong dividend payer.

RaySearch Laboratories Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that RaySearch Laboratories is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for RaySearch Laboratories that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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